Value and Price
Value is a scarce resource-but worth seeking.
One of the lesser talked about side effects of inflation is the decline in the quality and quantity of consumer goods as prices increase. Inflation naturally focuses our attention on prices, fueling our worst anxieties. Over time, we grow immune to the other toll of inflation in the marketplace: lower quality fabrics, less chips in a bag, longer waits for durable goods and lower quality service across the spectrum. Inflation means that even if a good’s price doesn’t increase, we still pay more by receiving worse and less.
Shrinkflation is when we get less and skimpflation is when we get lower quality-they are both expensive. Home prices rose significantly between 2020 and 2022 as buyers were eagerly snapping up properties financed by a 3.5% interest rate. Covid fueled a housing boom with changes to how we lived and used our homes. With limited inventory, inflation was the natural outcome in the housing market. Home prices rose significantly between 2020 and late 2022.
While the rising cost of homeownership was rightfully the focus and affordability the buzzword, little attention was paid to the skimpflation these buyers were subject to.
Skimpflation in the housing market showed up most commonly in home inspections and sellers passing costly repairs onto new buyers.
If you bought a house with me during this period, you too may have experienced skimpflation. Some of you purchased a great home contingent on a pass/fail inspection-you could walk away if there were concerns but if you moved forward, the seller wasn’t making repairs. This was a best case scenario in those years because OPB (other people’s buyers) were routinely waiving home inspections completely. Any ethical agent will tell you that they found those years a bit exhausting and concerning. My clients won many bidding wars on the merits and with their well being intact. Some experienced the frustration of losing a home to another buyer’s aggressive cash offer over asking price but walked away knowing they protected their financial self interests.
I used to brace myself for my client’s frustration and the questions I knew were coming when I would have to report their offer was declined in lieu of an as-is, no inspection, over asking price offer.
My brilliant clients asked intelligent questions like, “Why would someone do that? How am I supposed to compete with that?”
Towards the end of that cycle, some of you received my most efficient answers:
“Sometimes people make dumb decisions.”
“You shouldn’t compete with dumb decisions.”
The cost of skimpflation isn’t measured in the housing statistics but I’ve crunched the numbers to understand the costs of waiving home inspections. For many of those buyers, it was far more expensive to buy at 3.5% than it would have been to buy at our current rates around 6% and get repairs done. In fact, for quite a few of these buyers, it would have been less expensive to buy at even higher rates. Due diligence matters.
Inspection Requests and Value
The normal accepted inspection request today would have ended a sale four years ago. The good news for buyers, sellers are negotiating sensible repairs. The good news for sellers, you still aren’t negotiating the outlandish or ridiculous. Inspections are providing tremendous value to the housing market right now, ensuring buyers feel safe with their purchase and for sellers, reducing their potential exposure and ensuring the sale of their home.